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Carpetright plc

ValueTheMarkets welcomes a feature article by Riddler

Carpetright plc (CPR) appears to present a clear case of a disconnected valuation when stacked against its underlying financials. In January the company reported:” Whilst our third quarter result reflects an improved UK performance, a further deterioration in trading in the Netherlands means that we now expect our full year underlying pre-tax profit to be below the lower end of current market expectations.”

This is not the kind of forecasting one would expect to encourage you when sailing into a prevailing headwind within a choppy market sector. CPR has had the coattail effect of stronger FTSE100 companies whose premiums don’t match those of Carpetright. CPR has no place with the current valuation metric given its January warnings. It is astounding that CPR trades at such a huge premium to its peers, the company’s valuation of £400mln shows a thick pile despite only having underlying profits of less than £6mln in the UK for the first half of the year with the rest of its European camp failing to excite.

From a technical view point CPR has been in a downward trend for 12months, the recent rally since the January statement from 500p to 611p has provided the perfect opportunity to go short, This is mainly due to the bearish double top at 611p in February where the share price failed to break back through its own 200 day moving average, this has been compounded by the very fact a new seller has surfaced selling stock in the company via it’s RNS dated 4th March.

I feel that there is a clear case to go short of CPR at 595p-605p with either a very tight stop loss just above recent highs of 610p-615p or a wider stop loss at the 650p level. If CPR flags up any further deterioration in its core market places such as the Netherlands then the current support at 580p could quickly give way to further falls. CPR has been a favourite amongst shorters and currently has over 5% of its stock on loan according to “short interest tracker.”

Carpetright Fundamentals

Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth
01-May-10 516.60 22.30 31.60p 27.5 0.4 +74%
30-Apr-11 486.80 6.60 18.00p 38.5 n/a -43%
28-Apr-12 471.50 13.50 4.50p 134.2 n/a -75%
27-Apr-13 457.60 (5.10) 9.60p 66.1 0.6 +113%

Carpetright Forecasts

Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth
30-Apr-14 450.46 7.93 9.02p 66.1 n/a -6%
30-Apr-15 462.99 13.80 15.30p 39.0 0.6 +70%
30-Apr-16 477.94 19.02 22.55p 26.5 0.6 +47%

(The author of this article currently holds an open short in CPR)

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